Liz Clark, NACUBO’s VP of Policy and Research, sat down with Dr. Jeff Weinstein, Vemo Education co-founder and VP of Strategic Analytics, for a conversation about higher education finance in July 2021. They discussed key insights into the 2020 NACUBO Tuition Discounting Study (TDS), sponsored by Vemo Education.
In the coming weeks, Vemo will share Liz Clark’s questions about the 2020 TDS and Jeff Weinstein’s responses in a six-part series. Part 2 of 6 appears below. Part 1 is available here.
To hear an abbreviated audio version of their conversation, check out the NACUBO in Brief podcast.
Liz Clark: The 2020 Tuition Discounting Study found that tuition discount rates and the proportion of students receiving institutional aid are reaching new highs. Where do you see this trend going? At what point do you imagine a change, and what might that look like?
Jeff Weinstein: From a financial perspective, institutions will either decrease discounts and remain financially viable, or they’ll cease to be financially viable. From a cultural standpoint, the values of Gen Z and the economic circumstances of the near future are going to force institutions into uncomfortable change, both in recruitment and in financial aid. Let me share some additional context.
Higher Ed Trends: From the Aughts to Today
If you look at higher education from 2000 to 2010, you can find two clear trends that are still relevant today.
First, institutions started to spend less money on teaching. That is, they more frequently used part-time contingent faculty instead of full-time professors, as a cost-savings measure. Second, institutions started to spend more money on administration, facilities, maintenance, and marketing. The net effect was that there was little cost savings, if any, over the course of that decade.
What’s different today is that many of these colleges have reached a hard limit on cost-cutting measures in terms of faculty spend. They’ve already leveraged as much part-time faculty as they can, they’re unable to save any more money on professor and instructor pay, and so cost savings have to happen elsewhere.
But not all colleges are the same, and not all similar colleges are facing the same circumstances. Think of institutions not as averages repeated over and over, but rather as distributions that face a spectrum of challenges. Some institutions may have already increased their discounting and reached their limits in past years. Other institutions that still had some leeway may now be increasing their discounts because of the pandemic. So, the trend could continue over the next few years, if this last segment decides to increase its discounts. But in the near future, the well will run dry.
Maintaining Financial Viability
Where do institutions go from here? How do they maintain revenue and redress past financial issues?
Continued incremental adjustments to pricing strategies won’t likely solve the problems so many colleges are facing. In order to adapt to the current situation, I see colleges and universities having to restructure their entire enrollment process. Entirely new lines in financial aid distribution and packaging will reinvent those processes for the current and anticipated reality.
Mechanically, many colleges are going to have to raise their net prices to maintain financial viability. The way this manifests itself in tuition discounting is that schools decrease discounts first (when you are in a hole, stop digging). Then they adjust the sticker price.
On the face of it, then, college may have to become more expensive to the naked eye during this transition.
Colleges may employ common pricing strategies during the transition, such as freezing tuition, to stabilize the cost of higher education and make it more predictable—and thus more trustworthy—for students. Colleges must also contend, though, with the risk that sources of financial aid and parent pay (especially in a down economy) could become unstable, even if price is static.
If colleges can make the investment in college less risky for students, then the price can increase without hurting colleges’ enrollment yield. Depending on the strategies colleges and universities deploy to combat unsustainable discounting, and what other initiatives they take on, some might actually gain students in the process.
Higher Education and Gen Z
Beyond reevaluating their financial viability, colleges will have to face a larger social reckoning. Why do students choose to forego college? Or attend the wrong college? Or drop out of college?
A couple of key factors drive these trends, and none of them are the price of tuition for any given year:
- Student loans: Students have concerns about the sustainability of loan obligations. Will they be able to afford student debt, no matter how much, after college? How far into their careers will they be saddled with education loans?
- Job market: Students have concerns about the job market when they complete school. For nontraditional students who are already working, this makes them less likely to enroll in college or to resume a partially completed degree program.
- Value crisis: Students are questioning whether college is worth the cost. At the same time, institutions are losing their status as contributing members of the community.
As this confluence of student concerns suggests, colleges will have to change their actions if they hope to rebuild trust and appeal to the next generation of students. That generation, Gen Z, presents an entirely new set of challenges and opportunities for the market.
Recent findings by the Annie E Casey Foundation suggest that Gen Z is categorically different from its predecessors: more cynical, more pragmatic, and more financially oriented. Perhaps what’s most important, though, is that Gen Z lacks implicit trust in our primary social institutions, be it in education, social security, politics, etc. Many young people have watched those institutions fail their parents and older siblings. They’ve heard about the failures on 24-hour news, social media, and so on.
What’s more, they aren’t just aware of ambient societal failures or of the gig economy. They are expecting a lack of social support for themselves. They are expecting to participate in the gig economy themselves. They expect to be on their own.
Thus, for Gen Z and Gen Alpha behind them, traditional education institutions may not continue to be the obvious next step after high school. If those institutions want to convince Gen Z they’re worth the cost, they’ll have to demonstrate a stake in student outcomes and a good-faith effort to meet student needs.
That’s not because postsecondary education is any less beneficial to the vast majority of people today than it was to past generations. To the contrary, a bachelor’s degree program is beneficial for a clear majority of people. But Gen Z—typical 17–18-year-olds and their families—have to be given the information and support to figure this out for themselves.
Ultimately, if they are going to trust us, then we are going to have to trust them.